After months of wrangling, the European Supply Chain Act was surprisingly adopted by the EU member states in Brussels on Friday, March 15, 2024. The aim of the law is to improve the protection of the environment and human rights in the EU and worldwide. The EU Supply Chain Directive obliges large companies to ensure compliance with human rights and environmental protection along the entire supply chain in trade relations and to document this.
The EU supply chain law offers the opportunity to bring more transparency to food production, as food and agricultural production are equally affected. They are expected to monitor and optimize their performance with regard to issues such as child labour, exploitation of workers, safe working conditions, loss of biodiversity and environmental pollution. In the event of non-compliance, companies could face penalties which, depending on their size, could be based on the company's global net turnover. (Article 54)
The Supply Chain Act was given final approval by the Council of the EU states in Brussels on Friday, 24.05.2024. It will officially enter into force on Thursday, 25.07.2024 and the EU member states have two years to transpose the directive into national law.
The EU Supply Chain Act
Who does the Supply Chain Directive apply to?
The Corporate Sustainability Due Diligence Directive (CSDDD) applies to companies in the EU with more than 1,000 employees and a turnover of 450 million euros per year. (Article 30) Depending on company size and turnover, different time periods apply:
3-year deadline for companies with more than 5,000 employees and a turnover of more than 1.5 billion euros.
4-year deadline for companies with more than 3,000 employees and a turnover of 900 million euros
5-year deadline for companies with more than 1,000 employees and a turnover of 450 million euros.
What does the EU supply chain law mean for companies in concrete terms?
Large companies must be able to prove that there is no forced or child labor along the entire supply chain. In addition, large companies must draw up a plan to ensure that their business model and strategy are compatible with compliance with the Paris climate targets to limit global warming. Companies can otherwise be held accountable in European courts if violations occur in their supply chains.
Are small and medium-sized enterprises also affected by the EU Supply Chain Act?
The upcoming regulations will not only affect large companies, but SMEs and family businesses will also have to adapt to these changes in global trade. On the one hand, this applies if they supply large companies in sensitive sectors. On the other hand, ESG factors now offer an important competitive advantage. In the face of regulatory pressure, investor and public opinion, large companies are taking a leading role in prioritizing ESG.
What is the purpose of the Supply Chain Act in the agricultural sector?
According to the directive, harmful purchasing practices and price pressure on smaller agricultural producers should be combated, especially when selling food. Fair prices along the food supply chain are intended to balance out power imbalances in the agricultural sector and strengthen the position of farmers.
Large food processors and retailers would have to review their purchasing practices and introduce a purchasing policy that ensures living wages for their suppliers. However, the directive only applies to the largest companies with a global net turnover of over EUR 300 million. This could bring an advantage for small companies that have less bargaining power. It is also intended to protect agricultural producers in the EU from unfair competition and harmful practices by companies based both inside and outside the EU. (Article 34a)
Transparency is essential for genuine sustainability, and I have been campaigning for this for several decades. I am therefore delighted that the EU Supply Chain Act has been passed. This is a wonderful opportunity that I hope will now be taken seriously, even if many compromises have unfortunately been made. It is a step in the right direction.
Werner Lampert, organic and sustainability pioneer
What do companies need to do now?
It is imperative for companies of a certain size or with a corresponding turnover to address these guidelines. Those who are already familiar with the UN Guiding Principles have a solid basis for expanding their efforts. Companies with little experience should quickly get to grips with the necessary adjustments and should not underestimate the effort involved and consult experts. The prerequisite and best safeguard is a transparent and traceable supply chain. Although this traceability may represent a major challenge for many companies, the effort involved is comparable to the quality assurance measures that have been common practice for decades.
How Lampert supports your company
Lampert developed a quality assurance and origin database long before the Supply Chain Act came up for discussion in the EU, which enables extensive collection of data along the value chain. The Lampert database records all relevant production steps along the supply chain, such as inspection results from the inspection bodies, production data from processing companies and information on the origin of farm and animal feed, as well as goods movement data and quantities. The data is recorded in real time. This creates unique transparency and security.
The database has been used for 18 years for the Back to the origin organic products at HOFER/ALDI Süd.
